Watch out, nonprofit trade associations! If your group is a 501(c)(6) organization, your activities could potentially threaten your tax-exempt status. To ensure you’re in compliance with IRS rules, you need to routinely review your member offerings and any business you might conduct.

Support Common Interests

Trade associations exist to promote their members’ common interests and improve business conditions or “one or more lines of interest.” Typically, associations get into trouble when they interpret terms such as “promote common interests” and “improve business conditions” too broadly. For example, they might provide customized sales training for only some of their members. But associations don’t qualify for tax-exempt status if they exist only to perform services for individual members.

Another potential violation is engaging in business that’s normally carried out on a for-profit basis. And groups that are primarily social or that exist to promote a hobby generally don’t qualify for 501(c)(6) status.

Don’t Favor Individual Members

To avoid IRS scrutiny, you must be able to differentiate between qualified and nonqualified activities. For example, you are generally allowed to:

• Attempt to influence legislation relating to the common business interests of your members,
• Test and certify products and establish industry standards,
• Publish statistics on industry conditions to promote your members’ line of business, and
• Research effective business practices to share with your members.

But you should limit activities if they benefit specific members rather than your industry or profession as a whole. These might include selling advertising in member publications; facilitating the purchase of supplies for members; and providing workers’ compensation insurance to members. Your association’s “primary purpose” is key. Most 501(c)(6) groups perform some activities that don’t primarily serve common interests. But these activities should be limited in scope and number.

Be Careful with Unrelated Business

Even when certain activities don’t threaten your exempt status, performing services for members can trigger unrelated business income tax (UBIT). Typically, members pay for such services directly, instead of through dues or other common assessments. Depending on the services your association provides and the revenues raised, additional reporting may be required and you may owe UBIT.

Stop and reassess if you’re performing more services, or more substantial ones, for individual members. Instead, you might want to consider forming a separate for-profit organization to offer those services.

Observing Limits

It’s not always easy to differentiate between acceptable and unacceptable association activities. To help you remain on the right side of the IRS and preserve your tax-exempt status, contact us with questions.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

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You might think that artificial intelligence (AI) is just about using computers to perform complex tasks that otherwise would require human intelligence. That’s part of AI. But several technologies fall under the AI umbrella, including machine learning, natural language processing (NLP) and robotic process automation. Here’s how tools such as these can help nonprofits cut costs and achieve mission-critical objectives.

Offering more

The term “AI” is sometimes confused with data analytics or the application of intense mathematics. But AI can be used in everyday applications that enable nonprofits to improve program efficacy.

For example, the Crisis Text Line in New York has used AI to analyze millions of text messages to determine the words most associated with a high risk of suicide in the sender. And various animal welfare and environmental organizations have employed AI to combat poaching. PAWS, for example, uses modeling and machine learning to provide park rangers with information that helps them predict and prevent poachers’ actions. Global Fishing Watch has analyzed billions of messages from fishing boats to identify illegal industrial fishing ships.

Health-focused organizations also have adopted AI technologies. For example, Parkinson’s UK has unleashed AI to plow through reams of existing research data to fast-track new treatments.

Putting it into practice

Your nonprofit might be able to use AI in the following areas:

Fundraising. Machine learning can help you analyze your current donor database and develop models that predict donor behavior. For example, chatbots that simulate conversation might handle smaller donations while directing more complicated contributions to humans.

Human resources. AI software can expedite the hiring process. For instance, it can narrow the field and save interviewing time, freeing up HR staff to deal with other issues. AI also might reduce the risk of discrimination claims because human subjectivity may play less of a role in the process.

Communications. Chatbots, NLP and other tools make it easier to maintain efficient and effective communications with internal and external stakeholders — including potential donors and volunteers. You might be able to automate board packets and donation requests to ensure the timely delivery of information.

Worth considering

The initial investment required for AI may seem difficult to justify in uncertain economic times. However, because most nonprofits have similar operational needs, AI developers have created off-the-shelf solutions that can be customized. Grants or collaborative efforts with other nonprofits could also help your nonprofit pay for AI technology.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

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Accountable plans reimburse employees for work-related expenses free of federal income and employment taxes. So reimbursement payments aren’t subject to withholding from staffers’ paychecks. Your not-for-profit also benefits because the reimbursements aren’t subject to the employer’s portion of federal employment taxes.

Most prospective employees probably won’t accept a job based on the availability of an accountable plan. But offering one can help you retain valuable workers who submit frequent reimbursement requests.

What’s Covered?

The IRS stipulates that all expenses covered in an accountable plan have a business connection and be “reasonable.” Additionally, employers can’t reimburse employees more than what they paid for any business expense. And employees must account to you for their expenses and, if an expense allowance was provided, return any excess allowance within a reasonable time period.

Examples of expenses that might qualify for a tax-free reimbursement through an accountable plan include tools and equipment, home office supplies, dues and subscriptions. Certain meal, travel and transportation expenses also qualify.

Informal Documentation

How do you establish an accountable plan? It isn’t required to be in writing. But formally documenting your plan makes it easier for your nonprofit to prove its validity to the IRS if it’s challenged.

When administering your plan, your nonprofit is responsible for identifying the reimbursement or expense payment and keeping these amounts separate from other amounts, such as wages. The accountable plan must reimburse expenses in addition to an employee’s regular compensation. No matter how informal your nonprofit, you can’t substitute tax-free reimbursements for compensation that employees otherwise would have received.

Keep Good Records

The IRS also requires employers with accountable plans to keep good records for expenses that are reimbursed. This includes, to the extent applicable, documentation of:

• The amount of the expense and the date,
• Place of the travel, meal or transportation,
• Business purpose of the expense, and
• Business relationship of the people fed.

You also should require employees to submit receipts for any expenses of $75 or more and for all lodging unless your nonprofit uses a per diem plan.

Simple Process

Because plans don’t have to be formal, they’re relatively simple to establish. As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

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